Examination of Witnesses (Questions 100
- 119)
WEDNESDAY 29 MARCH 2006
MR SIMON
BARNES, MR
JOHN KINGSTON,
MR STEVE
CAUTLEY, MR
GREG ARCHER,
MR GRAHAM
SMITH AND
MR NICK
HARTLEY
Q100 Mr Hurd: How long did it take
to negotiate the Voluntary Agreement?
Mr Cautley: Two years.
Mr Barnes: Two years.
Q101 Mr Hurd: These discussions should
be taking place now.
Mr Barnes: I believe through the
European Climate Change Review those discussions are starting
to take place now. Certainly manufacturers have been providing
evidence to the Commission in terms of some of the costs that
would be necessary in terms of incremental costs on vehicles to
go to lower figures, sub-100 figures, for example.
Q102 Mr Hurd: Finally, am I right
in understanding that there is no such agreement in relation to
HGVs or LGVs?
Mr Barnes: No, there is not, neither
for Light Commercial Vehicles which is a separate sector. The
Commission is considering that particular sector as an extension
of the Voluntary Agreement.
Q103 Mr Vaizey: Can we talk about
diesel cars? Can you tell us about the contribution that diesel
cars have made to reduce carbon emissions?
Mr Barnes: If you look at the
overall figures the contribution appears to be relatively small
or smaller than it is on a vehicle-for-vehicle basis. That is
because diesel cars are predominately in perhaps larger vehicle
types and predominantly as a response we discussed the company
car taxation reform so that the car that has become a diesel car
is perhaps the car that would have been used as a company car
or a larger vehicle where the benefits of dieselisation are relatively
great. The cost of a diesel engine is approximately £1,000
more than a petrol engine so once you start putting it into smaller
cars that also are, by their nature, lower, the percentage incremental
cost becomes greater, if that makes sense. The opportunities for
dieselisation in the smaller car market are more challenging,
without a doubt. We would forecast in the SMMT that the level
of diesel penetration will go beyond 40%, potentially not much
more beyond 40% in the current fiscal regime, particularly on
fuel duty that we have in the UK. If we were hitting a level last
year of something like 36.8% then if we leave fuel duty as it
is now we do not believe that has much further to go. However,
companies have been investing in that technology and certainly
both Honda and Ford, who are here today, have invested considerable
sums in that. In a European context it is one of the major movers
towards a lower CO2 road transport system.
Q104 Mr Vaizey: That is brilliant;
you have answered my other two questions in a sense. Just to wrap
that point up, you are saying there has been a dash to diesel
and there is going to be a 40% limit approximately. Then you mentioned
technology, so could further significant progress be made in terms
of technology? Also, could there be further progress both in terms
of the 40% figure and the technology if the Government significantly
reduced rates on diesel?
Mr Barnes: In terms of the technology,
that is where the investment has been made in diesel technology.
You can align diesel technology to develop a diesel hybrid, but
that is a very expensive system because you have a more expensive
engine and then you have the hybrid element on top of that. As
I say, I think there is this challenge in the UK of putting a
diesel engine into a smaller car and making it financially viable.
Although the technology may have further to go and we have other
systems such as the Stop and Start system which is relevant so
that when you are in the vehicle the engine actually stops when
you are in a non-driving or an urban environment. That is another
opportunity but again that is potentially more suited to a gasoline
engine.
Q105 Mr Vaizey: Fuel duty?
Mr Barnes: If fuel duty remains
the same then you do have an additional cost of that diesel fuel
so you have to justify the mileage.
Q106 Mr Vaizey: Reduce it?
Mr Barnes: By what level to reduce
it I would have to do some calculations in my head, but I would
have thought a differential similar to that that currently exists
in France or Italy is probably an indication of what we would
be looking at.
Q107 Mr Vaizey: Which is what?
Mr Archer: Diesel prices in Germany
and France and on the continent are 20 to 40% lower than petrol
prices.
Q108 Mr Vaizey: What is the differential
here?
Mr Archer: They are virtually
parity, but slightly higher prices for diesel. Even in countries
like France diesel penetration is still rising. France is currently
at 70% but it is still growing. Simon is quite right in what he
says, that the amount of diesel in different segments of the market
is highly variable. In the smallest mini type cars it is virtually
100% petrol; as you increase the size of the vehicle that goes
up to about 55% in the upper medium, segments.
Q109 Mr Vaizey: This is in the UK?
Mr Archer: Yes, this is in the
UK.
Q110 Mr Vaizey: So what you are saying
there is that if you increased the differential, as it were, by
20 to 40% you could go way past the 40% target or prediction that
Simon was talking about?
Mr Archer: You could do but I
think there are two issues that you would need to bear in mind.
Firstly, there is a shortage of diesel in Europe; Europe is long
in petrol and short in diesel. In other words, we export petrol
to the US and we import diesel. That shortage of diesel is already
starting to increase diesel prices in Europe and I think if that
trend were to continue across Europe to very high levels of diesel
penetration you would see even larger shortages in available capacity
for diesel. The second point is that there are air quality considerations
to be borne in mind here as well. Diesel vehicles, even with new
technology, do have significantly higher NOx and particulate emissions
and therefore in any kind of move to diesel cars we would need
to bear in mind the impact on air quality and recognise that we
are already failing to meet air quality targets within the UK,
particularly in urban centres.
Q111 Mr Hurd: Do you see on the horizon
the NOx problem being solved?
Mr Archer: The Partnership does
not deal with air quality issues.
Mr Barnes: The NOx question is
a challenge and there is the PM versus NOx question which is very
high in the vehicle manufacturer's mind at the moment. Addressing
both at the same time to equal percentages is a real challenge,
but if we look at the HGV market, for example, some technologies
such as selective catalytic reduction are being used in that heavy
duty market. I think inevitably the technology will be learned
about in terms of that, but there is an additional cost to this;
there is also a CO2 penalty. Putting some of this technology
on vehicles means that we have potentially a penalty in terms
of our ability to reduce CO2 from diesel engines. The
NOx one is ultimately the more challenging than the PM one, I
think.
Q112 Mr Hurd: Given that NOx is itself
a greenhouse gas.
Mr Barnes: Yes, it is, and I noticed
in the Climate Change review yesterday that the forecasts are
for increasing NOx and I suspect that is not unreasonable.
Q113 Mr Vaizey: Am I right in thinking
that LPG is in roughly the same bracket as hybrid in terms of
its emissions?
Mr Barnes: LPG has been a bit
of a disaster in the UK in terms of the fiscal direction that
was given on it and in all the things we have talked about long-term
fiscal direction is what the industry likes. With LPG we failed
to achieve that. In terms of its air quality issues it has benefits
but in terms of its CO2 it has been recognised that
some of those benefits are not as great as when it was originally
introduced and I believe that is the reason why there was a change
in fiscal policy. If we look at LPG registrations of new LPG cars
they have halved in the last year because manufacturers are simply
not seeing a market for that technology because it is no longer
economically viable. Unfortunately the fleet market which is very
important has lost faith in LPG.
Q114 Colin Challen: The LowCVP's
memo suggested that the market for low carbon cars could be stimulated
by increasing the range of low carbon cars within VED bands. Is
that not a bit of an oxymoron?
Mr Archer: No, I think the point
we were making was particularly in relation to how you change
consumers' car buying behaviour and in order to do that there
are a number of things which need to be done. The first of them
is that you do need some stronger incentives, as we have discussed.
The second point is that you have actually got to make low carbon,
fuel efficient vehicles attractive to people; you have to make
them want to buy them. We have to recognise that most car buying
is a status purchase in the UK; we have to make it attractive
to people to want to buy more fuel efficient vehicles. The third
point is that if you look at the number of really fuel efficient,
low carbon vehicles in each segment of the market, there are only
a very small number, particularly amongst the larger vehicles.
There is only one Toyota Prius in the upper medium sector; there
is not a direct competitor which has equally low emissions. Similar
arguments could be made about the Honda in the lower medium sector.
If we are going to achieve significantly lower levels of emissions
from the vehicle fleet, then we have to have a lot more low carbon
vehicles available for people to purchase, and at the moment we
are caught in this chicken and egg situation whereby there is
not the market and therefore relatively few vehicles are available
for sale in the UK, but therefore relatively few vehicles are
available to sell so people do not buy them. I think what we have
to do is try to resolve that issue.
Q115 Colin Challen: What needs to
happen to make more choice available? To give an example, every
morning when I walk into here I walk past Alistair Darling's office
in Marshall Street under which there is a BMW showroom. Every
car in the window is F rated, so where is the evidence that the
motor manufacturers are actually trying to improve choice even
in what I dare say is an upmarket showroom? There is no choice
there at all; it is a bit of a false prospect that you are offering.
Mr Smith: BMW have obviously elected
to market vehicles largely based on performance. They have a very
wide range of diesel engines available but they do not come down
into the part of the market where many other manufacturers compete
where the choice is increasing. From the Low Carbon Vehicle Partnership
point of view the reason that we are dismayed about the lack of
grants currently is the fact that there is nothing to encourage
that consideration of lower carbon options. The desirability of
a BMW is a very strong influence on purchase and will probably
outweigh environmental considerations. That is what we have to
overcome. I do not think it is particularly necessary to criticise
a manufacturer like BMW; they have chosen to compete in that part
of the market. If that part of the market continues to be viable
then that is fine, but as we move the market to lower carbon vehicles
fuelled by lower carbon fuels then the ability to sell vehicles
based on high performance with large engines and high CO2
will diminish and manufacturers will make the appropriate choices
in their future product development.
Q116 Colin Challen: Manufacturers
will want to create models which compete with BMW, so it must
be a very lucrative section of the market. It would be true to
say, would it not, that manufacturers will make far greater profits
on those sorts of vehicles than on small low carbon vehicles?
Mr Smith: It comes back to the
consumer that if there is a very large part of the market that
finds those vehicles desirable then inevitably vehicle manufacturers
who are driven by commercial consideration will supply that market.
The important thing is to move the market which is the mission
of the Low Carbon Vehicle Partnership, to find and encourage mechanisms—we
have debated a number of them during the course of this afternoon—that
will begin to move the market to a different place where emissions
are lower.
Q117 Colin Challen: We need to move
the markets a lot quicker, do we not, because of the increase
in carbon emissions from road transport? What does the Government
need to do to incentivise the new technologies—the low carbon
technologies—that we need sooner rather than later, rather
than just shifting a little bit within those VED bands and trying
to convince people that they are doing a good job?
Mr Archer: One of the things that
has been put forward which is certainly supported by all the Partnership's
membership and supported amongst a number of groups would be the
idea of some kind of fee-bate scheme whereby you have a tax rebate
on a low carbon vehicle paid for by a purchase tax on a higher
emitting vehicle. It is fiscally neutral and it actually tackles
the issue which is the primary driver for car buying which is
the price. That is the first thing that everybody always considers.
Certainly I know that the motor manufacturers have some concerns
about that sort of approach and what impact it would have on the
car market overall, but that is certainly the sort of incentive
which some people have put forward for stimulating this market.
I think we have to recognise that with our current levels of Vehicle
Excise Duty we are not going to be seeing people making a switch
from high emitting to much lower ones when essentially what they
are saving is the cost of a tank full of petrol.
Mr Kingston: I do not think we
want to underplay the importance of incentives and the impact
that that can have on consumer behaviour. When the PowerShift
grant was removed in 2005 we saw a 50% reduction in sales of the
Honda Civic IMA from 2004 to 2005 on the back of the removal of
the PowerShift grant. The incentives really do have a role to
play in changing consumer behaviour and attitude towards low carbon
vehicles.
Q118 Colin Challen: I am very pleased
to hear what you have said about financial incentives and I would
be interested to know if you have had any response from the Treasury
on that particular issue. However, there are also the aspirations
of people educated to develop when they pick up their glossy magazines
and see various vehicles parked on the sides of mountains or driving
along totally empty roads in the highlands and most of those seem
to me to reflect the desire for a larger vehicle, not for a category
A or B rated vehicle, so do you think there is a disproportionate
amount of money spent advertising the heavy carbon emitting cars
and should there not be a change in that pattern?
Mr Kingston: To a certain degree
responding to consumer demand, what do you change first?
Q119 Colin Challen: Let us talk about
reality. Most people when they drive to work get stuck in congestion
so why not use adverts that show the merits of your vehicle when
you are stuck in congestion?
Mr Barnes: I think we would need
to become a bit more sophisticated in terms of understanding the
car buying public and their attitude and we know the DfT are doing
work into this. We all buy cars for different reasons—we
might it as a second car, as a sports car we drive occasionally,
as a company car—and when we are making that purchase, although
price will be the number one priority there will be different
rankings of priorities after that. I think a more sophisticated
approach by the Government and, to some extent, by the manufacturers
themselves in understanding how they can address some of these
different market segments is important in understanding that.
It is potentially difficult to address this to target cars per
se because cars are a means of transport and we buy them for different
reasons and some of us are prepared to downsize in terms of space,
some of us will want the engine performance and less space and
it is a very sophisticated choice. Sometimes some of the mechanisms
that are used by government are potentially a bit clumsy in terms
of how they react and our concern is that they can cause market
distortion—different markets can pop up for totally different
reasons—and if we are not careful we can do something and
then we create another market that is unknown. I think to some
extent this happened in the US where they looked to introduce
and have carbon targets for cars and everyone ended up buying
trucks. We think we need to be a little bit careful in the understanding
of how we approach these issues.
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